British Columbia Wineries Await Answers

Provincial warehouse/distribution system will change; details still unknown

by Peter Mitham

Mark Hicken of the Vintage Law Group said he expects that revamping of liquor distribution will prompt British Columbia to introduce genuine wholesale pricing.

Vancouver, B.C.— British Columbia finance minister Kevin Falcon unveiled the province’s budget last week with a pledge to sell B.C.’s government-owned liquor distribution business, including its warehousing facilities and associated distribution services. The plan is part of a liquidation of “surplus assets” designed to raise funds for government coffers.

What that will mean was a hot topic at a Feb. 27 wine law seminar organized by Law Seminars International to coincide with this week’s Vancouver Playhouse International Wine Festival. While sales of wine and other alcohol occur through both 197 government stores and a mix of privately operated agency stores, retailers and licensees, distribution is now exclusively handled by the province. Private stores and restaurants that want to buy wine typically place their orders with the BC Liquor Distribution Branch and wait for the warehouse to deliver.

How the sale of the warehouse and distribution business will impact industry operations is anyone’s guess, given a pending review of liquor regulations in the province that also was announced as part of the budget.

“It’s probably too early to speculate what form it will take or what the ramifications will be,” said seminar presenter Al Hudec, a corporate lawyer and partner at the firm Farris, Vaughan, Wills & Murphy in Vancouver.

In neighboring Washington state, distribution has long been privately run; The November 2011 passage of Initiative 1183 will open up warehousing, though BC producers will still face limited warehousing options.

“There hasn’t been any suggestion that the government is going to entirely deregulate distribution and permit retailers to buy directly from manufacturers other than farmgate wineries in the Okanagan,” Hudec explained. “And there hasn’t been any suggestion that government will license a number of competing distributors.”

One scenario is that warehousing and distribution will be sold to a single operator that will operate subject to government regulation and oversight, as is the practice in Alberta. Coupled with a review of liquor regulations, however, seminar co-chair Mark Hicken of the Vintage Law Group is more optimistic than he’s been for some time at the prospects for fundamental change in B.C.’s liquor landscape.

Current system confusing to all
Hicken expects the revamping of liquor distribution will prompt the province to introduce genuine wholesale pricing. Current practice grants private vendors a discount—now between 10% and 30%—from the price at which the product sells in government liquor stores. BC wineries also receive a rebate to ensure that what they receive from sales in government stores is equivalent to what they’re paid selling through one of the 21 stores operating under licenses held by the BC Wine Institute.

“Last week, and again on the weekend, the minister responsible for liquor distribution, Rich Coleman, did state a few times that as part of this change to the wholesale distribution system, they would eliminate the varying discounts that are currently provided to different kinds of stores and licensees,” Hicken told seminar attendees. “If that happens, it’s pretty revolutionary, because the system as it currently stands is a mess of contradictions.”

Speaking to Wines & Vines afterward, Hicken said the public commitment to change is a positive sign, even if the details are still unknown. “To have consistent wholesale pricing for the different classes of retail stores and for restaurants, bars and hotels...would be an amazing boost for the hospitality and tourism industry,” he said. “It would be an amazing benefit for consumers, because we’d actually have proper competitive pricing in the system.”

How soon answers will come is another question. Tinhorn Creek winemaker Sandra Oldfield is looking forward to a government breakfast with industry March 2, but whether or not any answers will be forthcoming is unknown. “It would be nice,” she said.

Meanwhile, one seminar participant from a private retailer in Vancouver asked how government stores will maintain their 3,100-strong unionized workforce if they go head-to-head with private stores on pricing.

A bid to fully privatize BC’s liquor distribution business in 2002 met strong resistance from union members, who eventually killed the proposal in its tracks and left the province with its current hybrid retail environment.